International channels of transmission of monetary policy and the Mundellian Trilemma

Rey, H (2016) International channels of transmission of monetary policy and the Mundellian Trilemma. IMF Economic Review, 64 (1). pp. 6-35. ISSN 2041-4161

Abstract

This is the Mundell-Fleming lecture given at the IMF on November 13, 2014. This lecture argues that the Global Financial Cycle is a challenge for the validity of the Mundellian trilemma. The paper presents evidence that U.S. monetary policy shocks are transmitted internationally and affect financial conditions even in inflation-targeting economies with large financial markets. Hence flexible exchange rates are not enough to guarantee monetary autonomy in a world of large capital flows.